Interestingly, it seems that two Strip casinos have had their annual gaming revenues dip below $72 million. In FY 2010, there were 23 casinos in that category. In FY 2011, despite the opening of the Cosmopolitan, the total number fell to 22.

First things first: the big picture of how Vegas visitors spent their money at the big casino hotels in FY'11.
As you can see, there's been a small but perceptible shift in the revenue picture. Gaming's piece of the pie shrank by 0.5%, dropping it to 38.2%. Rooms increased by the same amount, with everything else remaining just about constant (Beverage increased by 0.1%, but it all still totals to 100% thanks to the magic of rounding).

This speaks to something that we've all seen: the slow upward creep of room rates. Room rates increased more than eight dollars, from $122.13 to $130.58, in FY 2011. Occupancy picked up (90% -->91%), and so did ADRs, meaning that even though the total amount lost by gamblers in Strip casinos increased by about $200 million ($4.7 billion to $4.9 billion), the percentage of gaming win to total revenues fell.

In other words, exactly what happened in the boom years, only in a more muted way.

This tells me that all of us armchair marketing executives who said that casinos' only path to post-recession profitability would be to offer customers better room and F&B values and hope for more gaming win to make up the difference were wrong. There wasn't any major shift of the model, and certainly no return to the loss-leader days of yore. Instead, once visitation (and particularly the mid-week business travel sector) picked up, casinos were able to raise room rates (and charge more and higher resort fees), leading to gains across the board. "Common sense" analysts 0, "bean-counters" 1.

There was another interesting development: Within the casino the percentage of money won at slots fell from 50.6% to 48.9%. This isn't the first time that's happened--traditionally on the Strip slot and table win alternate in the top spot--but it speaks to the continuing important of high-action play and high rollers. Which means that we'll be seeing more attention paid to ultra-luxe hotel accommodations, since that sector is driving a bigger portion of the business. From this perspective, the answer to the big question of early 2011, "Does it make sense to close Alex?" seems to be "no," to the extent that the same folks who bet big want to eat at Alex.

All in all, the statistically average casino did this kind of business:

Obviously, Wynn and Bellagio did much better numbers than this, but this gives you a sense of the scale of the numbers that Strip casinos deal with.

On to the expense side of the ledger. Here's where it gets interesting. Bad debts, which are traditionally about 2% or so of total Strip casino revenues, inched up from 2.5% to 2.6%. For the year, big Strip casinos wrote off over $124 million as noncollectable. That might seem like enough to get credit managers fired en masse, but when you consider that casinos offered somewhere in the neighborhood of $9.7 billion in credit (15% of total wager guesstimate), it's not so egregious. It comes out to somewhere in the neighborhood of a 1.2% default rate, which might not be too bad in this economy.

Doing the math, I figured that the average Strip casino gets stuck for an average of $15,490 in bad debts per day.

And if you thought Strip casinos were getting stingier with their comps, you might be absolutely right. Casino comps fell in both absolute terms ($1.3 million to $1.2 million) and as a percentage of revenues (28% to 26%).

I'm hedging my declaration that casinos are stingier because two casinos dropped out of this group this year, and since they were obviously two of the lower performers, they likely had a higher comp/revenue ratio than the average. I'd also factor in that some casinos cut comps and the major addition, the Cosmopolitan, was not known for the generosity of its casino comps. So while some casinos might have comped at the same or even higher levels, the average comp for the group dropped.

Also, seeing comp/gaming revenue rates rising isn't necessarily a sign of a more generous casino. It's also a sign of a financially troubled casino that's not recouping its marketing spend. Tropicana Atlantic City, for example, saw its comp ratio rise from a low (for the market) 21.9% in calendar 2003 to 42.3% in 2010. In the long term, that's suicidal: the former AC Hilton's ratio has been above 40% since 2007, which explains...why it's no longer the AC Hilton.

Another interesting comparison: the percentage of room revenues from comped rooms fell from about 25% to about 21%. Casinos comped fewer rooms in 2011.

There's one number that analysts will focus on, and that's return on invested capital, which rose in FY'11 from 0.2% to 1.5%. That's still far below the glory days of the late 1990s but at least it's heading in the right direction.

So all of this tells me not to expect any major strategic changes on the Strip in 2012: operators are doing better under their current models, and no one's going to get fired for continuing to show modest improvements, especially if they didn't already get fired when their company's stock price tanked.

Comments

Considering how drastically LVS cut comps at Venelazzo earlier in '11, could we then possible extrapolate from the numbers that the minor drop in overall comp expenditures might actually reflect an increase in comping by everyone else? Shouldn't the overall comp numbers reflect a bigger drop given LVS's "no comp" policy, even if it only really was in place for a few months?

Also, I wonder if the "closing of Alex", combined with the super increase in focus on the club crowd as well as what many (like myself) have seen as a perceptible "downscaling" of Wynncore over the past year, possibly reflect a rare misstep in Steve Wynn's strategy, especially given the fact that the overall beverage revenue increase for the year was practically imperceptible?